Prudential 2002 Annual Report Download - page 158
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Please find page 158 of the 2002 Prudential annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.PRUDENTIAL FINANCIAL, INC.
Notes to Supplemental Combining Financial Information
1. BASIS OF PRESENTATION
The supplemental combining financial information presents the consolidated financial position and results of
operations for Prudential Financial, Inc. and its subsidiaries (the “Company”) separately reporting the Financial
Services Businesses and the Closed Block Business. The Financial Services Businesses and the Closed Block
Business are both fully integrated operations of the Company and are not separate legal entities. The supplemental
combining financial information presents the results of the Financial Services Businesses and the Closed Block
Business as if they were separate reporting entities and should be read in conjunction with the Consolidated
Financial Statements.
2. DEMUTUALIZATION AND RECAPITALIZATION
On the date of demutualization, the Company issued two classes of common stock. The Common Stock
reflects the performance of the Financial Services Businesses and the Class B Stock reflects the performance of
the Closed Block Business. Upon the establishment of the Closed Block Business, $5.6 billion of net assets
previously associated with the former Traditional Participating Products segment were transferred to the Financial
Services Businesses. Concurrent with the demutualization, Prudential Holdings, LLC, a wholly owned subsidiary
of Prudential Financial, Inc., issued $1.75 billion in senior secured notes (the “IHC debt”), of which net proceeds
of $1.66 billion were allocated to the Financial Services Businesses. The IHC debt is serviced by the cash flows of
the Closed Block Business and the results of the Closed Block Business reflect interest expense associated with
the IHC debt.
The Closed Block Business was established on the date of demutualization and includes the assets and
liabilities of the Closed Block (see Note 10 to the Consolidated Financial Statements for a description of the
Closed Block). It also includes assets held outside the Closed Block necessary to meet insurance regulatory
capital requirements related to products included within the Closed Block; deferred policy acquisition costs
related to the Closed Block policies; the principal amount of the IHC debt (as discussed in Note 12 to the
Consolidated Financial Statements) and related unamortized debt issuance costs and an interest rate swap related
to the IHC debt; and certain other related assets and liabilities. For the period prior to the date of demutualization,
the results of the Closed Block Business are those of the former Traditional Participating Products segment, which
historically sold primarily participating insurance and annuity products that the Company ceased offering in
connection with demutualization. A minor portion of the former Traditional Participating Products segment
consisted of other traditional insurance products that are now included in the Financial Services Businesses and
not in the Closed Block Business. The Financial Services Businesses consist of the Insurance, Investment, and
International Insurance and Investments divisions and Corporate and Other operations.
3. ALLOCATION OF RESULTS
This supplemental combining financial information reflects the assets, liabilities, revenues and expenses
directly attributable to the Financial Services Businesses and the Closed Block Business, as well as allocations
deemed reasonable by management in order to fairly present the financial position and results of operations of
each business on a stand alone basis. While management considers the allocations utilized to be reasonable,
management has the discretion to make operational and financial decisions that may affect the allocation methods
and resulting assets, liabilities, revenues and expenses of each business. In addition, management has limited
discretion over accounting policies and the appropriate allocation of earnings between the two businesses. The
Company has agreements which provide that, in most instances, the Company may not change the allocation
methodology or accounting policies for the allocation of earnings between the Financial Services Businesses and
Closed Block Business without the prior consent of the Class B Stock investors or IHC debt bond insurer.
General corporate overhead not directly attributable to a specific business that has been incurred in
connection with the generation of the businesses’ revenues is generally allocated based on the historical general
and administrative expenses of each business as a percentage of the total for the Company.
Prudential Financial 2002 Annual Report 157